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FEATURE: US Gulf Coast RBOB premium over CBOB starts summer grade season at record low

Highlights

Summer USGC RBOB gasoline premium to CBOB lowest on record

Traders cite 2021 EPA rules focused on RVP over VOC emissions

A new year brought new rules for reformulated gasoline that have led to the lowest RBOB premium over CBOB on record for the summer transition.

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S&P Global Platts assessed USGC CBOB, the most common gasoline spec, down 25 points to NYMEX June RBOB minus 11.75 cents/gal April 20, while RBOB, the basis for the NYMEX futures, gained 25 points to minus 5.25 cents/gal for Gulf Coast delivery into Colonial Pipeline.

The spread of 6.50 cents/gal is slightly wider than the 6.18-cent average since the switch to summer grade gasoline March 9, to a 7.4 RVP for RBOB, known as F1, and a 10 RVP for CBOB, known as A2.

The spread last year from the transition to this point averaged 9.58 cents/gal, while the non-pandemic 2019 spread averaged 12.04 cents/gal. Since Platts started assessing USGC CBOB in late 2009, the RBOB/CBOB spread from the transition point typically in the second week of March to now had ranged from 7.64 cents/gal in 2010 to 14.9 cents/gal in 2013.

New rules ease summer RBOB cost

Winter RBOB/CBOB spreads registered around flat as they are similar RVPS at 13.5 and 14.5, other requirements are similar, and volatility concerns less worrisome for refiners and blenders because of colder weather. The summer transition raises costs for both grades to meet lower RVPs but had cost more for RBOB with more strict VOC emissions controls under the previous system of EPA regulation.

The new EPA rule for 2021 moved away from using VOC RBOB to meet air quality attainment in more populated areas and focused on RVP instead, much like the system for CBOB in most of the country. The EPA anticipated the rules will save regulated parties $32.9 million per year, with consumers benefiting from lower pump prices without a "measurable impact" on emissions or air quality.

"I expect the spread to be less than in the past because the EPA [regulations] made it easier to produce F1," said Andy Lipow of Lipow Oil Associates in Houston. "It's just sulfur, benzene and RVP. There's no need to worry about aromatics, olefins, VOC."

A gasoline trader said the market believed the spread would come in under the new rules once blending started for summer gasoline.

"Yes, it was expected. The elimination of VOC requirements and the EPA complex model made blending F's much easier than before," he said. "It's in the range that I heard back late last year."

Record in 2013

The record RBOB premium over CBOB happened April 25, 2013, when it was 28.55 cents/gal. Nine of the top 10 premiums happened around that period or around the same time frame in 2012. The widest spread so far in 2021 was 7.1 cents April 8. The bulk of the current spread may be accounted for in RVP. Platts assessed an RVP adjustment minus 1 psi for CBOB at 2 cents/gal April 20, resulting in a 4.8-cent difference from 10 RVP to 7.4 RVP.

Any adjustments after that are now "just a function of supply and demand," a second market source said. "That's the main point."